Yankees Pockets Get Deeper, but When Will the Wallet Come Out?

The Bronx Bombers may be cutting back on payroll, but that’s not because there is a shortage of Yankee dollars. According to Forbes’ 2017 business of baseball survey, the team’s enterprise value has reached $4 billion, or 33% greater than the second ranked Dodgers (click here for an analysis of the league-wide data). The Yankees’ revenue also reached a lofty plateau, topping $600 million, or nearly $100 million above Los Angeles. The pinstripes may have fallen short of the World Series last season, but from a financial standpoint, 2017 was a banner year.

Yankees’ Financial Snapshot, 2003-2017

Note: Revenue for each team is net of stadium debt and revenue sharing, and includes non-MLB events at the ballpark. Also excluded was the $18 million payout to each team from the sale of BamTech to Disney as well as profit/loss from RSNs in which teams own equity.
Source: Forbes.com

Despite the Yankees boasting the second largest revenue increase among all 30 teams (behind only the Braves), the bottom line did take a substantial hit, falling from $39 million in 2016 to $14 million last year. Forbes did not identify the reason for the drop in profit margin, but the culprit wasn’t player costs. In 2017, the Yankees spent $224 million on payroll plus the luxury tax, or almost $30 million less than the year before. As a result, the Bronx Bombers’ percentage of revenue spent on player costs plummeted to 36%, which was not only well below recent norms, but also ranked as the fifth lowest in the major leagues.

Yankees’ Payroll/Luxury Tax as a Percentage of Team Revenue, 2001 to 2018E

Note: Revenue for each team is net of stadium debt and revenue sharing, and includes non-MLB events at the ballpark. Also excluded was the $18 million payout to each team from the sale of BamTech to Disney as well as profit/loss from RSNs in which teams own equity. Payroll is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based. For 2018E, revenue is Forbes 2017 kept flat, and payroll is set at the luxury tax threshold of $197 million (for a proprietary tracking calculation of the Yankees 2018 payroll, see here).

Source: bizofbaseball.com and MLB releases published by AP (final payroll), MLB releases published by AP (luxury tax) and Forbes (revenue)

2017 Player Cost (Payroll/Luxury Tax) as a Percentage of Team Revenue for all 30 Teams

Note: Revenue/EBITDA for each team is net of stadium debt and revenue sharing, and includes non-MLB events at the ballpark. Also excluded was the $18 million payout to each team from the sale of BamTech to Disney as well as profit/loss from RSNs in which teams own equity. Payroll excludes benefits and is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based.

Not only have the Yankees’ enjoyed sustained financial success over the years, but they’ve also maintained their advantage over the rest of the league. At the same time that the Yankees’ spending has declined in comparison to the other 29 teams, its share of revenue has remained fairly stable, ranging between 6% and 8%, with peak levels coinciding with the opening of the new Yankee Stadium.

Yankees’ Payroll and Revenue versus the Rest of MLB, 2001, 2013-2017

Note: Revenue is net of stadium debt and revenue sharing, and includes non-MLB events at the ballpark. Also excluded from 2017 was the $18 million payout to each team from the sale of BamTech to Disney as well as profit/loss from RSNs in which teams own equity. Payroll excludes benefits and is based on final figures for each year released by MLB, and may not necessarily equal the amount upon which the luxury tax is based.

Another advantage the Yankees enjoy over the rest of the league is long-term revenue certainty. The Bronx Bombers are in the midst of 30-year deal with FOX that will pay the team an escalating rights fee that tops out over $350 million. With such a significant amount of income locked into place, the Yankees can more comfortably project spending over long periods of time, which is a big advantage when pursuing elite free agents.

Yankees Expected Rights Fee Payments from FOX, 2013 to 2042

Note: Amortized upfront payment is based on $584 million payment from FOX to the Yankees pursuant to initial equity investment.

Over the past few years, the Yankees have used their deepening pockets to hide their wallet, but will that continue next off season? With a stellar free agent class on the horizon, and plenty of dry powder at their disposal, the Yankees will have the opportunity to make a very big splash. Using the team’s 2017 revenue figure of $619 million would mean the Yankees could spend an additional $100 million on free agents this off season and still be investing less than half of revenue in player costs. Although the team is unlikely to splurge in such a manner, doing so would not be fiscally outlandish. In fact, not spending significantly would be the more irrational course of action, provided, of course, winning is the still the Yankees’ top priority.